1 eFX Daily colour

1.1 FX Spot

1.1.1 US

(Feb-03) The dollar surged while equity markets and digital currencies plunged after US President Donald Trump announced significant tariffs on imports from China, Canada, and Mexico. This move, the most extensive act of protectionism by a US president in nearly a century, is expected to have widespread effects on inflation, geopolitics, and economic growth. The tariffs, affecting trade worth about $1.3 trillion, will raise the average US tariff rate significantly and could reduce US GDP by 1.2% while increasing core PCE by 0.7%. Mexico and Canada, heavily reliant on exports to the US, face severe economic risks, while China’s impact is more manageable. All three countries have vowed to retaliate, potentially expanding beyond tariffs. The overall impact on the US economy is uncertain, but significant disruptions are anticipated.

  • Key Points
    • Tariffs Announced: 10% on China, 25% on Mexico, 25% on Canadian non-energy goods, 10% on Canadian energy.
    • Economic Impact: Affects $1.3 trillion in trade, 43% of US imports, nearly 5% of US GDP. Raises average US tariff rate from ~3% to 10.7%. Potential reduction of US GDP by 1.2%, increase in core PCE by 0.7%.

1.1.2 EU

(Feb-03) President Trump reiterated his warning to the EU about impending tariffs, citing a large trade deficit and accusing the EU of not accepting US cars and farm products. His comments suggest little optimism for avoiding a North American trade war, which could spread globally. Following his threats, US stock futures and Asian shares declined, and the peso and Canadian dollar fell considerably. Both Canada and Mexico have pledged to retaliate, with China also vowing countermeasures.

1.1.3 SA

(Feb-03) The upcoming week is significant, starting with market reactions to President Trump’s tariffs, SA State of the Nation Address (SONA) on Thur, and ending with the US payrolls report. Trump announced cutting off future funding to South Africa, accusing it of land confiscation and poor treatment of certain classes. This follows SA’s new bill allowing “nil compensation” for expropriated property. The rand weakened due to Trump’s comments and local load-shedding concerns, with potential moves to 19.00 USDZAR. Despite this, positive fundamentals for the rand remain, supported by a record gold price (saw a new high of 2817 31-Jan). A break below the 18.60 level would indicate a potential easing, otherwise, ZAR remain under pressure.

1.1.3.1 USDZAR levels

  • (Jan-31) There is still not enough ZAR supportive information, as such, we do not expect to trade below 18.40 anytime soon.
    • President Trump also threatened to impose 100% tariffs on the BRICS countries should they go ahead and move away from using the dollar.
  • (Feb-03) SA under pressure today at the back of President Trump’s comment at the back of the expropriation bill. This now see the ZAR levels at 19 and 18.60.

1.1.3.2 USDZAR spreads

  • (Jan-31) Good news continue to ran away from ZAR as we are seeing the market de-risk at the back of Loadshedding and Trump comments.
    • Spreads remain elevated

1.1.4 Key events this week:

  • Eurozone HCOB Manufacturing PMI, CPI, Monday
  • UK S&P Global Manufacturing PMI, Monday
  • China Caixin services PMI, Wednesday
  • Eurozone HCOB Services PMI, PPI, Wednesday
  • SA SONA, Thursday
  • Eurozone retail sales, Thursday
  • UK rate decision, Thursday
  • Mexico rate decision, Thursday
  • India rate decision, Friday
  • Canada unemployment, Friday
  • US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday

1.2 FX Volatility Update

1.2.1 Update

By Thuto Mukena - Institutional Sales Specialist (Jan-31)

  • Overview

It’s been a data-packed, headline-heavy week, with risk conditions swinging in all directions. The ZAR has had a choppy week, yesterday’s 25bps SARB rate cut sent the local unit in the red territory, reversing some of its prior session’s gains, leaving the pair to close the week at R18.5688/$.On the vol front, the 1-week volatility risk premium has compressed deeper into negative territory, highlighting that the market mispriced and underpriced this week’s risk conditions. USD/ZAR Implied vols also hover lower as we brace for an exit for this week , the 1W USD/ZAR implied vol tenor no longer trading at a premium over 1M. The tenor closed yesterday’s session 1.87 vol p.p below opening levels.

  • EM & G10

EM pairs saw mixed spot performance on the day, while most G10 currencies were offered, closing the session weaker. On the implied vol front, G10 implied vols largely tracked spot moves, with USD/CAD and USD/JPY 1-week implied vols standing out as the exceptions, firming by 145bps and 64bps from the open. Main event on the day was the ECB rate decision, EUR/USD 1-week implied vol dropped by 62bps, declining alongside spot in the aftermath of the ECB’s 25bps rate cut, which set the deposit rate at 2.75%. Key take aways from the press conference is that the central bank maintained a data-dependent stance on future cuts, emphasizing that policy remains restrictive while also flagging concerns about growth risks in the region.

1.3 Africa

1.3.1 Update

By sizwe Mfayela - Institutional Sales Specialist (Feb-03)

  • Kenya
    • Kenya’s inflation remained below the central bank’s 5% midpoint target. Jan YoY CPI increased 3.3% vs 3.0% in Dec. the increase was mainly driven by higher food and transport prices.
  • Nigeria
    • Presidential adviser Taiwo Oyedele says Nigeria’s proposed tax reforms will reduce inflation mainly for households. The proposed measures include doubling value added tax to 12.% and exempting some medicine, food, and essential items.
  • Uganda
    • Uganda Jan YoY CPI increased to 3.6% vs 3.3% in Dec. core inflation increased to 4.2% vs 3.9% in Dec.
  • Zambia
    • Zambia hiked fuel prices on 01 Feb. petrol prices increased to ZMW 34.98, from ZMW 34.67 per litre and diesel prices rose to ZMW 32.54 from 32.43 per litre.
  • Eurobonds
    • SOAF had a busy session on Friday, with headline-driven positive month-end flows, resulting in the curve trading two-way for most of the session. ESKOM brought back loadshedding, and that saw SOAF get offered, albeit the selling was light. ESKOM flows, surprisingly, were close to non-existent and just marked wider in sympathy. At the 6-8bps wides in SOAF, buyers came through, buying in belly and long-end bonds. Curve closed 0.125-0.50pts lower (4-5bps wider).
    • SSA in general cash credit was better bid with ANGOL and KENINT, which closed 0.125-0.25pts lower VS NGERIA which continued to enjoy the local bid in belly and long-end. Local buyers in KENINT disappeared into the latter half of the week, leaving the curve net offered by offshore real money accounts

1.3.2 Economic data

Economic data releases